When we talk about real estate in 2023, it's about interest rates and their impact on our budget.
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Many Quebec property owners have had an unusual year, and it hasn't been particularly easy on the wallet. Over the course of 2023, some homeowners saw their monthly payments double, while others with fixed payments saw their mortgage term (amortization) increase by 10 or 15 years, if not more.
“We have never talked so much about the key interest rate. In 2023, you need to know what this means if you are in the real estate market because it directly impacts your actions. It was an element that had to be constantly kept in mind, whether those who bought or wanted to extend their mortgage,” says Mélanie Bergeron, real estate agent.
However, the Bank of Canada only raised the key interest rate by…0.75 percentage points during the year, points out Stéphane Bruyère, mortgage broker at Mortgage Architects.
“The story of 2023 is the realization that the real impact of 2022 has begun. What we suffered in 2023 is the impact of the Bank of Canada increases in 2022,” he explains. In fact, the bank raised the key interest rate seven times in 2022, from 0.25% to 4.25%. However, when the Bank of Canada makes a decision, the impact on the economy will not be felt until 12 to 18 months later.
“We have said for a long time that this will happen and will hit hard, but in 2023 we have started to see it hard. The credit lines that have increased, the mortgages and people who are starting to slow down their consumption because they are starting to worry.”
No discount
Prices remained stable overall in 2023. Some properties have fallen in price because people had no choice or split up and had to sell quickly. But overall, sellers still lost out in 2023.
“It was a return to pre-pandemic, to normality,” says Mélanie Bergeron. After two years of coming onto the market with inflated prices and often over budget, people again started taking the time and shopping around to analyze what it was really worth,” she says.
We went from about 50 visits a weekend to a house and about twenty promises to buy to about two or three. Many people have withdrawn from the market, explains Mélanie Bergeron.
“But we did not see the turnaround in the situation and the accompanying drop in prices that many expected in 2023. The seller still comes away very well, even if he has to negotiate a little more.”
Sales are falling, but prices are holding up
Burdened by continued high mortgage rates in 2023, residential construction activity in the province will have declined sharply for the third year in a row. The Quebec Real Estate Agents Association speaks of a 13% decrease compared to 2022, with this year also recording a 20% decrease in transactions compared to 2021. In the Greater Montreal area, the same trend was observed Higher intensity: the number of transactions fell by 15% compared to 2022 and by no less than 35% compared to its peak in 2020. However, despite longer sales periods, low inventory levels allowed sellers to maintain prices at least at last year's levels. In Quebec, the average price for a single-family home is now $413,200, a 40% increase since 2020. In the Montreal region, the average price is $539,800 for a single-family home and $390 for the condominium, corresponding increases of 35% and 28% respectively compared to 2020.
Housing and Affordability: The Catastrophe
Home ownership remains one of the most problematic and underappreciated issues of the Trudeau and Legault governments. The Bank of Canada's maintenance of key interest rates and the slowdown in the labor market have significantly weakened consumer confidence in recent months. When it comes to housing, they have never been more pessimistic in 20 years, notes National Bank (NBC) economist Daren King. The indices are breaking records of unaffordability that take us back to the 1980s. Unfortunately, the rental market is hardly more accessible. The housing shortage, combined with the context of an explosive migration movement – the country's population grew by 3.2% in 2023, the strongest increase since 1958 – reinforces the phenomenon. The Canada Mortgage and Housing Corporation (CMHC) forecasts that the rent for a two-bedroom (4.5) apartment in Montreal will rise by 10% in 2024 to an average of $1,230 per month or $14,760 per year becomes. In order to stabilize the situation, the industry estimates that 600,000 apartments would have to be built annually, twice as many as before. In the short term, no one believes it.
Rents are exploding
The imbalance between supply and demand continued to make life difficult for renters and those looking for housing. According to the Regroupement des Committees Logement et Associations de Tenants du Québec (RCLALQ), rental prices in Quebec have exploded by 13.7% in just one year, the sharpest increase in four years. In Montreal, the average rental price increased by 14%, while in Quebec rents increased by 19% compared to last year. In 2024, a new bill (31) could be passed that would regulate the rights of tenants. However, some aspects remain controversial, such as the transfer of the tenancy or the burden of proof that owners must provide if they want to evict tenants.
Housing construction is declining
As the housing crisis is in full swing, housing construction is declining across the country… In the first six months of 2023, housing starts in the Montreal metropolitan area (CMA) fell 58% compared to the same point in 2022, according to the Canada Mortgage and Housing Corporation (CMHC). Strict regulations as well as rising interest rates and inflation affecting construction costs are slowing building construction across the country. CMHC estimated last summer that 3.5 million additional units would need to be built nationwide to restore market balance.
The “mortgage bomb” is ticking…
The massive renewal of mortgage loans taken during the pandemic will lead to the possible sale of properties, says Philippe Lecoq, president of the Proprio Direct banner. During Corona times, many people took out five-year mortgages with interest rates as low as 1.5%. If they need to renew their loan – and many have already started doing so – their mortgage payment will jump because current interest rates are much higher. According to RBC, 60% of mortgage loans in the country will need to be renewed in the next three years. In 2024, around 20% of mortgages will have to be renewed, and in 2025 this proportion will rise to 40%, emphasizes Philippe Lecoq. “We can therefore foresee a return to an active market that will offset the current serious imbalance between supply and demand,” he says.
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